Food subsidy bill may come down

In a year that will be marred by drought and low crop production, the government’s food subsidy is likely to be less than the budgetary amount. The government will end up spending less on buying foodgrain owing to lower procurement.

Food constitutes 47 per cent of the total government subsidy bill of Rs 1,11,275.88 crore for 2009-10. Though a precise estimate of the quantum of reduction is not known yet, a senior finance ministry official said the subsidy bill would come down from the budgeted Rs 52,490 crore. “In a drought year, open market purchases are expected to be more and production will be less, so the total government procurement will come down,” said the official.

The government had anticipated a 20 per cent increase in food subsidy over last year’s revised estimate of Rs 43,627 crore. The revised estimates were a substantial 33.5 per cent higher than the budgeted estimate for 2008-09, mainly on account of higher procurement.

The government’s procurement of rice is expected to be down by at least 10-15 per cent though an official involved in the process said it would not be lower than the year before. “We will procure a minimum 27-28 million tonne (mt) rice, which has been the average procurement for the last few years,” said a Food Corporation of India official.

States like Punjab and Haryana have said there would be a minimum impact on output of rice since both these states have adequate canal irrigation facility. Other major rice producing states like Andhra Pradesh, Chhattisgarh and Orissa have had normal rains. “Therefore, even in worst case scenario, procurement could fall only by 10-15 per cent from this year’s record level of nearly 33 mt,” he said.

Rice procurement in the ongoing 2008-09 kharif marketing season had touched an all-time high of 32.6 mt. Wheat procurement in the 2009-10 rabi marketing season touched a record 25.3 mt. The government procures wheat and rice for its stocks and the public distribution system, or PDS. While wheat procurement takes place from April to June, rice is procured throughout the year with the season starting in October.

The finance ministry official said though the volume of procurement would come down the price at which the government buys (minimum support price) has increased though it continues to sell at subsidised issue price. The economic cost has, therefore, gone up. The Centre currently issues rice at Rs 5.65 a kg and wheat at Rs 4.15 a kg to the states for families below the poverty line. But the above poverty line families get wheat at Rs 6.10 a kg and Rice at Rs 8.70 a kg.

The difference between the minimum support price (MSP) and issue price is the subsidy. About two-thirds of the food subsidy is the difference between MSP and the issue price.